Jacmar's move comes just a week before a May 12 courtroom showdown between Shakey's Inc. and 19 of its franchisees, who sued the company in December 2002. The multi-million-dollar lawsuit charged Shakey's with fraud, negligent misrepresentation and breach of contract.

In April, Los Angeles County Superior Court Judge Ralph Dau removed the fraud and negligent misrepresentation components of the complaint, but left the breach of contract components, which could cost Shakey's millions in potential damages.

On May 3, during what was supposed to be the final status conference prior to the trial, plaintiffs requested a 60-day postponement to provide time for Jacmar's acquisition negotiations. Dau granted the motion and rescheduled the trial for July 14.

Jacmar President Randy Hill was unavailable for comment at press time.

Attorneys representing both parties confirmed that negotiations to purchase the chain from Inno-Pacific Holdings, its Singaporean owner, are underway. Further details about the negotiations were not available, and likely won't be until the potential deal is completed or quashed.

According to Alan Siskind, a former Shakey's product and marketing consultant, this is Jacmar's second opportunity to purchase the chain. In 2002, Siskind and Shakey's then-President Sean Flynn, discussed a possible sale with Jacmar executive Bill Tilley, but Tilley thought the company's worth didn't justify the offering price.

"Bill initially professed interest in a purchase, but what he valued the company at and what we thought would be an acceptable offer to Inno-Pac were worlds apart," Siskind said.

Shakey's battle over another breach of contract lawsuit filed by two franchisees in 2001 (and settled in 2002) was

Should Jacmar purchase the company, franchisees and observers believe it could reverse the crumbling fortunes of the once-great chain.

The final sale price remains a question for now. Shakey's claims it has $2 million in assets and it reaps around $2 million a year in franchise royalties. But according to its 2002 balance sheet, it reported $2 million in debt.

another red flag that turned Tilley away, Siskind said. "He felt that until Shakey's cleaned house from a legal standpoint, he wasn't interested in pursuing a purchase or a significant investment in the company. He had the justification to take a wait-and-see attitude."

A brighter future

Siskind said a Jacmar purchase would be a tremendous boost for the beleaguered pizza chain, which once boasted 450 units in the U.S. Not only are Jacmar's 19 Shakey's profitable, they're supported by Jacmar's own private food distributorship based in Irwindale, Calif.

"They bring to the table a tremendous amount of operations and marketing experience," he said. "So if it happens, it's the best of both worlds. It will save the brand and bring to the table a very experienced and well-capitalized operator."

Ron Stilwell, Shakey's vice president of operations from 2001 to 2002, agreed with Siskind.

"I think there are a lot of advantages," said Stilwell, now CEO and president of Phoenix-based Eatza Pizza, a 23-unit all-you-can-eat buffet chain. "(Jacmar) understands the system because they've been a part of it for well over 20 years. They understand the problems Shakey's has had in the past, and they understand what would get it going and fix it in the future."

Jacmar also is well heeled. According to a filing with the Securities and Exchange Commission, it owns 41.5 percent of the outstanding shares (worth roughly $115 million) in Chicago Pizza & Brewery, a 30-unit, pizza-centered restaurant and brewery chain based in Huntington Beach, Calif.

It wields a great deal of leverage within the Shakey's chain, as well. In a 2002 interview with PizzaMarketplace, Hill said Jacmar would not renew its franchise contract with Shakey's when it expired in 2005, if Inno-Pacific still owned the company. "We will never—and this is an irrevocable statement—be associated beyond the length of our existing contract with Inno-Pacific. And if there's a way for us to exit the system prior to expiration we will."

According to a 2002 PizzaMarketplace interview with John McNulty, a one-store Shakey's franchisee and president of the Shakey's Franchised Dealers Association, were Jacmar to pull its stores, it would drain $21 million in annual sales from the system and remove at least a third of Shakey's Inc.'s royalties income--a devastating loss to its owner, Inno-Pacific.

Jacmar's exodus appears unlikely now, however, and the prospect of having Jacmar at the helm has Chuck Wilburn, spokesperson for the franchisees currently suing Shakey's, looking forward to the future.

"The dealers are delighted with the prospect of Jacmar acquiring the company," he said. "They are professional, successful, brilliant operators, and having them leading the way will be a refreshing change. They've got the capabilities of making Shakey's great again."

What's it worth?

As stated in Inno-Pacific's 2002 and 2003 annual reports, independent financial auditors expressed strong doubts about the holding company's ability to continue as a going concern. The reports said Inno-Pacific faces millions in unpaid taxes to the Singapore tax authority, as well as potential losses in the U.S. from ongoing franchisee litigation against Shakey's Inc., the company's only revenue-generating subsidiary.

Inno-Pacific recently hoped to gain Singaporean analyst coverage for its stock (valued at U.S. 14 cents a share), but according to a May 4 report in Singapore's Business Times, two stock watchers who looked at the company issued only "sell" advisories.

So what would a sale to Jacmar yield? The answer is anyone's guess, said Siskind, since assessing Shakey's actual worth is difficult.

The chain's gross sales for 2003 were $53 million, which would produce royalties of $1.6 million to $2.7 million (based on an estimated range of 3 percent to 5 percent payments on gross sales). As of June 30, 2002, Shakey's balance sheet cited total assets of $2.1 million in assets, but total liabilities of $2.1 million.

Beyond royalties, Siskind said, Shakey's does have equity in its name.

"Research we conducted years ago showed there was tremendous name and brand awareness of Shakey's; in spite of all the back room dramatics, it's still very well known," Siskind said. "And just as when Shakey's was well known in the Anglo community at its peak, they've built the same credibility with the Hispanic community, which is very strong in Southern California," its core market.

Add Jacmar's strengths to the mix, Siskind added, and the future bodes well for Shakey's.

"If anyone can turn this around, they can," he said. "They certainly bring to the table all the components needed to do it."